New World Development faces first loss in 20 years due to Xi Jinping’s property crackdown

New World Development, one of Hong Kong's largest property developers, is bracing for its first financial loss in two decades, a stark signal of the severe impact of Chinese President Xi Jinping’s crackdown on the property market and the broader economic malaise gripping Hong Kong.

The Cheng family-owned firm has projected a substantial loss of up to HK$20 billion ($2.6 billion) for the financial year ending in June, marking a significant downturn for a company that has long been a key indicator of Hong Kong's economic health.

Excessive borrowing by Chinese property developers

New World’s financial woes are a direct result of stringent measures imposed by Beijing to curb excessive borrowing by property developers.

Since 2021, the Chinese government has enacted policies aimed at reducing the financial leverage of developers, precipitating a liquidity crisis in the real estate sector.

The company's losses are further exacerbated by rising interest rates and a depreciating renminbi, with New World also forecasting a 23% drop in core profits.

The broader property sector has also suffered, with other major developers experiencing severe distress.

Evergrande, once China’s largest property developer, has faced liquidation after accumulating an enormous debt of HK$328 billion, underscoring the severe ramifications of the regulatory crackdown.

Hong Kong home prices to fall by 10% in Q2 of 2024

New World’s difficulties reflect broader economic challenges in Hong Kong.

The region has endured repeated recessions since the onset of the pandemic, compounded by Beijing’s imposition of a contentious security law.

This political shift has led to a notable exodus of Western businesses, undermining investor confidence and stifling economic growth.

The property market in Hong Kong is particularly hard-hit.

According to CBRE, home prices are projected to fall by up to 10% in the second half of 2024, following a 3.1% decline in the first half.

The impact on New World’s stock price has been severe, with shares plunging to a 21-year low of approximately HK$6.80 following the announcement of their financial losses.

In an attempt to address the downturn, Xi Jinping’s administration has introduced several measures to revive the property market.

These include relaxing mortgage rules and launching a 300 billion yuan (£32 billion) "re-lending" facility designed to convert unsold commercial properties into affordable housing.

However, these initiatives have yet to halt the sector’s decline.

Global financial institutions remain cautious. Last week, UBS revised its forecast for China’s economic growth in 2024, citing the persistent property slump as a major factor.

As the crisis continues, the fate of Hong Kong’s property giants like New World Development will be closely monitored as a key barometer of the region’s economic resilience.